Minding our business: Drivers of New Zealand business investment over the last 20 years

Release date
10/03/2021
Reference
AN2021/03
Authors
Julia Ratcliffe; Eric Tong
ISSN
ISSN 2230-5505

Non-technical summary

This Analytical Note aims to understand the drivers of business investment in New Zealand over the past 20 years. Business investment is important because it is a significant component of New Zealand’s economy and a key determinant of our economy’s productive capacity. Understanding the drivers of business investment will also allow us to better understand monetary policy transmission through this channel.

Our results confirm that aggregate demand, financial conditions, and uncertainty are significant drivers of business investment. An increase in aggregate demand tends to increase investment, while increases in short-term interest rates and uncertainty tend to decrease investment. This is in line with economic theory.

Our results validate our understanding that the business investment channel of monetary policy is effective in boosting business investment through its impact of the short-term rates.